Gjensidige Forsikring ASA

OSE:GJF

Earnings Call Transcript 2022-Q1

[Mitra Negård, executive]

Everyone, and welcome to the first quarter presentation of Gjensidige. My name is Mitra Negård, and I'm Head of Investor Relations. As always, we will start with our CEO, Helge Leiro Baastad, who will give you the highlights of the quarter; followed by our CFO, Jostein Amdal, who will go into the numbers in further detail. And we have, of course, a lot of time for Q&A after that. Helge, please?

[Helge Baastad, executive]

Thank you, Mitra. Good morning and welcome, everyone. The world has indeed changed with Russia's invasion of Ukraine. Geopolitical uncertainty has risen to the highest level in decades. It's shocking and frightening to witness an unprovoked attack on a sovereign democracy country in Europe in 2022. Gjensidige is not directly impacted by the conflict. We have no direct risk exposure in Russia or Ukraine. Our investments in these markets are marginal, but the volatility in the global markets has, of course, impacted our returns this quarter.

The conflict has added further fuel with the inflationary pressure that has been building up, which will also reach our markets. However, as I will comment on shortly, we are prepared and we are confident that we will manage this well. Cyber risk has risen in the wake of the war. We have high readiness to manage this too. Our employees in the Baltics are closer to the war in many ways. We have established an emergency team in Lithuania, closely monitoring the situation. We can only hope that this meaningless conflict will come to an end soon. In the meantime, we will continue to focus on taking care of our employees and customers and contribute to society at large.

Let's turn to Page 2 for some comments on our first quarter results. We generated a profit before tax of NOK 1.506 billion. The underwriting result was a solid NOK 1.025 billion, reflecting strong underlying results. Large losses this quarter were significantly higher than the -- and unusually low levels we have had for many years, among others, driven by the many storms hitting our markets. Both the number and the size of the large claims are well within what we should expect to occur from time to time, and they are in line with our risk appetite.

Earned premiums rose by a healthy 8.6% or 9.9% in local currency. I'm very pleased to see that we continued improving our underlying profitability through both continued strong growth and very efficient operations. The underlying frequency loss ratio improved with 1.9 percentage points. Our combined ratio for the quarter was 86.5% impacted by the large losses as mentioned. Our cost discipline remains strong. With a cost ratio of 13.9% for the quarter, we have a good start to the year to deliver on our target of below 14%. The heavy turmoils in the financial markets resulted in a negative return on our investments of NOK 285 million this quarter. The results were also impacted by the remaining NOK 800 million in gain on the Oslo Areal transaction. Our return on equity came to a very good 22%. Jostein will revert with more detailed comments on our results for the quarter.

Then turning to Page 3, a few words about our operations. I will start with inflation. High demand, soaring energy pricing and supply disruptions have sparked global inflation. As a consequence, overall claims inflation in our markets is rising. However, we do not currently see any areas of significant concern. Claims inflation so far has been in line with our previous expectations as witnessed by our continued strong underlying profitability numbers. Furthermore, we have not had any challenges related to supply of materials or man-hours. We continuously monitor the development in close cooperation with our partners, and we are well prepared. As we have said so many times before, this is simply ordinary course of business for us. We are confident of our ability to stay ahead of the inflation curve based on our strong competitiveness and supplier agreements in Norway with the best terms and conditions. But of course, the extent, reach and duration of the inflationary pressure is uncertain.

Based on our latest analysis, we expect claims inflation for private property in Norway to be in the range of 7% to 9%. For motor in Norway, we expect claims inflation to remain in the range of 4% to 6%, moving towards the upper end at the end of this year. We are prepared to handle this and ensure that we are ahead of the inflation curve. Hence, we will raise prices at least in line with claims inflation for all products.

The strong momentum for our Norwegian operations continued in the first quarter. Premium growth in the private remained high despite tough competition. We have managed to continue to put through necessary price increases while maintaining a very high customer retention. This is a result of a strong offering and a very strong brand. We have recently strengthened our brand profile. Our new tagline, no one knows the day better, emphasize our leading position in Norway and our deep analytical insights, which enable us to continue developing safety solutions for our customers.

Premiums continue to grow strongly in our commercial segments as well. Volumes are up, and we have successfully put through necessary price increases in a very competitive market. At the same time, the retention has risen further from over the high level. Going forward, we will continue to raise prices to reflect high expected claims inflation and beyond expected claims inflation for certain pockets in the large corporate portfolio. We expect to be able to put this through.

We had a good underlying performance in Denmark this quarter, adjusting for the high large losses and absence of COVID impacts this year. Premium growth remained high and operations are strong. We continue to move forward with the new core IT system. The private products are being migrated over to the new platform and the system is providing increasing support for our distribution activities. We are also very pleased with progress in the ongoing efficiency program for claims handling.

Further, I'm very pleased to see that our turnaround efforts in Sweden are starting to show results. Operations are becoming increasingly efficient, our portfolios are healthy and we are growing profitability. We are in the initial planning phase for implementation of the new core system in Sweden. This will be a game changer for our Swedish business too and a crucial part of the foundation to succeed with our digital transformation. We are convinced that the investments will pay off in the long run, although sales in the short term could be somewhat impacted.

We have carried out a thorough assessment of our operations in the Baltics, which I will dwell further into on Page 4. We have started an accelerated transformation program with a clear focus on 3 main areas: pricing and underwriting; claims handling; and organizational efficiency. First, we will implement pricing measures on unprofitable products on top of the price increases we have put through during the past 6 months. Second, we will look into pruning our commercial portfolio with particular focus on our health and motor products. Third, we will improve our claims handling by stringent evaluation of estimates from workshops and improved steering towards preferred partners. We will also leverage analytics to reduce leakage, and we expect to see results from new fraud filters.

And finally, we will step up standardizing and digitalization of processes. The latter with particular focus on distribution, contributing to organizational efficiency. We have strong expectations from these actions despite the tough competition and high inflationary pressure also out in the Baltics. Our combined ratio shall reach a run rate below 100% in the fourth quarter of this year and continue improving after that, and we will bring down our operating expenses significantly from 2023.

We have a significant growth ambition for the medium-term, both for the private and SME customers. Organic growth, supported by good customer experiences and customer-friendly and efficient digital solutions, shall be complemented by a broader reach in the commercial sector through brokers, and we will continue to seek attractive M&A opportunities.

Then over to Page 5. We continue to make progress on sustainability. We have a number of initiatives, as you can see on this slide, taking important steps towards delivering on our ambitious targets. With the EU taxonomy reporting moving closer, I'm very happy to announce that we have our first insurance product to fully comply with the taxonomy criteria, namely commercial building insurance. We will continue to transform the rest of eligible products going forward.

Then over to Page 6. A few words about a pilot we will be launching very shortly to complement our home seller insurance launched back in January this year. We recognize our customers' need to maximize the value of their home before selling. Maksimer is a fixed price package offering, ensuring that certified craftsmen carry out all necessary refurbishment in accordance with the real estate agents advice. We solve our customers' problems and at the same time, contribute to damage prevention. Our market share for home seller insurance is around 10% as we speak, with distribution to a selected group of real estate agents. We see a very interesting opportunity in this market and will widen our presence gradually as we gain more experience in this new field.

And with that, I will leave the word to Jostein to present the fourth quarter results in more detail.

[Jostein Amdal, executive]

Thank you, Helge, and good morning, everybody. I'll start on Page 8. We delivered a profit before tax of NOK 1.506 billion in the first quarter, slightly below last year. Premium growth and improved underlying frequency loss ratio and a lower cost ratio improved the underwriting result, but this was more than offset by the above-average large losses. With the COVID restrictions being lifted, we do not see any COVID impacts on our claims this quarter. We see solid growth in all segments and improvements in the underlying profitability in all segments but the Baltics, also if you adjust for COVID and weather effects last year.

Baltic results are weak. As Helge explained, we are focused on turning around the situation there and have set ambitious yet realistic targets, which we will achieve. Our investment portfolio generated negative returns this quarter, reflecting the market conditions. Our pension business generated higher results. I'll revert on both of these in a moment. The remaining gain of NOK 800 million from the sale of Oslo Areal was recorded in the quarter, underlying other items.

Turning to Page 9. The strong development in premiums continued in the first quarter with all segments showing good growth. Total earned premiums were up 8.6% or 9.9% adjusted for currency effects. We saw a strong increase in premiums for the private segment, driven by price increases from motor, property and accident and health insurance as well as higher volumes for motor insurance despite the decline in new and secondhand car sales. We also increased the number of customers. We maintained our strong market position and competitiveness.

The rise in premiums in the Commercial segment followed effective pricing measures, solid renewals and volume growth for the motor and accident and health insurance products. Cross-selling of pension products is picking up. We are expanding our sales force in response to this and to further strengthen our position in the SME market. Premiums in Denmark increased by 11.3% measured in local currency. This strong development was driven by volume growth and price increases in the Commercial segment [indiscernible] in particular for workers' compensation. Higher premium for specialty travel insurance and the NEM business also contributed to growth. Premiums in the private segment, excluding NEM, were somewhat lower than the same quarter of last year due to competitive pressure.

Earned premiums in Sweden measured in local currency increased by 7.7% mainly driven by volume growth in the Commercial portfolio. Termination of a partner agreement in the private portfolio in the third quarter last year resulted in a decline in earned premiums in the private portfolio. We're happy to see the results of our efforts to increase customer satisfaction with our sales, service and claims processes. Customer retention rose more than 3 percentage points this quarter to just below 80%.

Double-digit rise in premiums in the Baltics was driven by growth in most lines, particularly motor and health insurance. Travel insurance volumes also increased significantly, although they are still below pre-pandemic levels. Customer retention in the Baltics increased by 1.8 percentage points to 69.6%.

Turning over to Page 10. Underlying frequency loss ratio improved by 1.9 percentage points compared with the same quarter in 2021. Adjusted for the positive COVID-19 impact on claims and the effect on claims of the extraordinary cold winter in Norway, the first -- in the first quarter of 2021, the underlying frequency loss ratio improved 0.7 percentage points. This strong development was driven by effective pricing measures, solid renewals and good risk selection. Large losses were significantly higher than the levels we've seen for a while and our estimated quarterly average. With a deviation such as this is in itself not unexpected, and it's not a sign of any deterioration in underwriting quality or changing risk appetite.

Together with lower run-off gains, this brought the loss ratio for the quarter up to 72.5%. We continue to improve our underlying results in Norway and Denmark from already strong levels. And we are very pleased to see that our efforts have started to show results in Sweden, although we cannot rule out some volatility going forward. We are convinced that the measures we have already implemented and our ongoing efforts will continue to improve results for this segment. The Baltics still have a further way to go, and we are disappointed about the results there. But we're confident in our plans to change the course of this segment towards an acceptable profitability and that we will see the results of this already during 2022.

Let's turn to Page 11. We recorded NOK 1.057 billion in operating expenses in the quarter. Our cost ratio moved further down by 0.6 percentage points to 13.9%. And if you exclude the Baltics, the cost ratio was 13.3% for the quarter. The main driver of this improvement is premium growth and strong cost discipline in the group. Our low cost ratio in Norway came further down by 0.8 percentage points. Denmark recorded a 0.5 percentage point decrease in the cost ratio driven by good premium growth. The cost ratio in our Swedish business improved by 1.6 percentage points. And the cost ratio in the Baltics improved by 0.7 percentage points, driven by higher premiums. We see a strong potential to enhance cost efficiency in this segment.

A few comments on our pension operation on Slide 12. The pretax profit came to NOK 54 million up year-on-year reflecting growth in the business and good returns on real estate investments. Assets under management was broadly in line with what we had at year-end last year, reflecting development in financial markets. Annualized return on equity was 15.3%. The solvency ratio at the end of the quarter was 169%. So far, the introduction of individual pension account has not led to any significant change in the market dynamics. It is prudent to expect some pressure on our profitability in the short to medium-term.

Moving on to the investment portfolio on Page 13. Our investment portfolio generated a return of minus 0.5% in the first quarter, reflecting a significant market term in the wake of the war in Ukraine and general macroeconomic uncertainty. The match portfolio returned 0.1% negative, and the free portfolio returned minus 1%. The result for the quarter was negatively impacted by higher interest rates, a decline in equity markets and higher credit spreads. Private equity and commodities contributed positively to the performance.

We have reduced risk on our portfolio in response to the market conditions. We have prepared for further market turbulence for quite some time. Although we cannot avoid the impact, we have a balanced portfolio and solid fixed-income investments with a large majority having investment-grade rating. Our investment strategy remains firm with risk exposure within the range set by our Board. The proceeds from Oslo Areal transaction have been invested in fixed income instruments. We will continue to consider attractive investment opportunities within our risk appetite, including real estate.

Over to Page 14. Our capital position is very strong, with a solvency ratio of 188% at the end of the quarter. The ratio is down 2 percentage points from year-end. Remember that we at year-end estimated a solvency margin of approximately 180% adjusted for the announced but not finalized sale of Oslo Areal and the acquisition of Falck. Eligible own funds came down by NOK 2.3 billion, driven by a positive contribution from Solvency II operating earnings offset primarily by the loss on the pre portfolio and the acquisition of formulaic as well as the formulaic dividend. Our capital requirement decreased primarily due to lower market risk following the sale of Oslo Areal and lower exposure to equities and high-yield bonds.

A few words about IFRS 17 on Page 15. We are well prepared for the new accounting standard, which will become effective from next year. Overall, we expect a limited impact for our general insurance accounts. We will be using a simplified method and our preliminary calculations indicating a significant effect on our underwriting results. We expect a significant impact on our pension business opening balance. We're working through the numbers, and we'll discuss this in further detail together with further insights into the impacts on our General Insurance business in over in November this year.

Finally, a few words on the latest development of our operational targets on Slide 16. We launched a set of new operational targets at our Capital Markets Day in November last year. These are important in supporting delivery on our strategic priorities and financial targets towards 2025. Customer satisfaction continues to be at a very high level. Retention in Norway is slightly up for the fourth quarter from an already very high level, and retention outside Norway has improved in Sweden and the Baltics and remained broadly unchanged in Denmark.

Digitalization and automation are key measures to secure efficiency. The digitalization index, we have established to gauge the progress in our digital sales and service interaction with our customers is a combined index, which we aim to raise by 10% annually over the next years, were up 7% this quarter, a progress and very satisfied with. On the claims handling side, digital claims reporting has been stable this quarter at 76% for the group. Automation of the whole claim settlement process is an area with significant savings potential. We introduced a new KPI on automated claims and the share of claims processed automatically in Norway has improved with a 1 percentage point during the quarter, currently standing at 56%. We will continue to develop these digital services further going forward.

I'll then hand the word back to Helge.

[Helge Baastad, executive]

Thank you, Jostein. To sum up on Page 17. We are very pleased with the solid results we continue to deliver. We have set ambitious targets for the next 4 years, and we are confident to deliver on that. We will continue to focus on profitable growth. Together with strong and efficient operations of a strong product offering and good economic prospects in our markets, this should bode well for continued solid results and attractive returns.

And finally, on Page 18, an announcement on an upcoming webinar on the 9th of June, where we'll be discussing our plans within the mobility space, now with Falck road assistance and the toll road companies's fleet and Vegamot in the group. We will send out and release with further details shortly, but in the meantime, please save this date.

And with that, we will now open for Q&A session of this presentation.

[Operator]

We will take our first question from Blair Stewart from Bank of America.

[Blair Stewart, analyst]

I've got 3 questions. They're somewhat detailed orientated, nothing major. The first one is just on Sweden with the new system that you're implementing. Can you talk a little bit what impact that will have? You did sound a bit cautious about the short term, talking about perhaps an impact on customer volumes. Just wonder what that meant. And I think longer term, what the benefits will bring. You talked about the transformational game changer.

And then secondly, just on the private equity performance in the quarter, am I right in thinking that's still done on a 1-quarter lag? So would it be reasonable to expect a much weaker performance in Q2 as you reported?

And thirdly, on IFRS 17, I think you talked about significant impact. Does that mean lower opening balance for the P&C business and the pensions business? I think you talked in the past about having on the one hand, a benefit from discounting the reserves, but then that's offset by a higher risk premium. I just wonder how your thoughts have evolved there given that interest rates have moved up. I would have thought the discounting impact would have been a bit more -- a bit larger. So therefore, the net effect might have been a bit smaller. So just any additional thoughts on the IFRS 17 impact? I appreciate it's still early days.

[Helge Baastad, executive]

It's Helge. The core system, as you know, the background for this -- the present core system in Norway and also it's a sister system we have had in Sweden and Denmark, it's like 27 years old or something like that. So all the players in the Nordics have to move into more modern systems. And what we will see in Denmark first, and we are planning -- currently planning for Sweden, this will enhance our competitive advantage, enable to short the time to market competitive pricing and operational efficiency. We expect to see the impact over time.

In the short term though, we will see benefits from phasing of old systems and we will make room for investments in the new system. So it's about agility, speed, our ability to take into the whole payment process and the whole core system process partners. So it's lots of flexibility, speed and, of course, also cost per policy. I can say that in Private Denmark, it's very successful and really strong feedback from people dealing with the system now. And for all practical reasons, we have the whole private business into the system in Denmark. So it's really successful. Sweden, we are planning, and I guess, '23, '24 is the years for Sweden.

[Blair Stewart, analyst]

Why do you say that short term, the sales could be impacted negatively in Sweden?

[Helge Baastad, executive]

No, I'm not saying we will benefit from phasing out the old system. And the system in Denmark and Sweden, if you compare that to Norway, the cost per policy has been rather high, so we'll see a reduction in cost per policy short and long term. And long term, we will see, I would say, the more strategic effects by -- this has a much more agile system, as I said, shorter time to market, ability to change prices continuously, take onboard partners, et cetera. That's a more long-term -- you will see long-term effects. Short term, we will see a reduction in cost per policy.

[Jostein Amdal, executive]

On the private equity question, you're absolutely right. It's in general lag for fourth quarter due to we need to get the reported net asset values from the underlying funds that we -- the investment in the portfolio. Well, that will imply a negative drop in Q2. It's a bit early to tell so far, and we will not guide on that because, I mean, these are not the overall market. This is specific investments in each and every [ firm ] that will determine how this development goes. Some of the exposure here is, of course, oil services related, which have had quite a run during the first quarter in the listed markets. So this is a bit early to say.

Thirdly, IFRS 17. I mean, you're right. At the year-end, we said that there will be a negative effect on overall the kind of three major effects on general insurance here. It's discounting effect on the reserves, there's a new risk margin and then there is mark-to-market on the hold-to-maturity bonds, which are -- have a positive overvalue in the accounts today. Net-net, we said there was a negative effect at the end of 2021 with interest rates moving up, this might have changed somewhat now. We haven't done the calculation as of the first quarter yet. But we'll update you when we get to the webinar.

[Helge Baastad, executive]

If I may add just a comment on the core system. I kindly remind by Mitra here that short term, we will maybe see some sales reduction because when you implement a system like this, you will have focus on implementation instead of the ordinary course of business selling products. We have seen that as a minor problem in Denmark. And as you know, I'm very focused on the cost side. And I'm also very pleased that we started to report on the [ 13 ] figures and cost ratio also. So I was on the cost side when I commented the new core system. Maybe some sales disruption in the implementation phase.

[Operator]

We will take our next question from Tryfonas Spyrou from Berenberg.

[Tryfonas Spyrou, analyst]

I have one question. I was wondering you can perhaps comment on where do you see claims inflation across the different parts of your book for example, motor, housing and obviously in different sort of geographies in Norway versus Denmark? And I guess, following off on that, how do you see competition in these markets? Do you feel the competition being rational? When it comes to price increases or DC taking different approaches?

[Helge Baastad, executive]

Yes. Regarding claims inflation, I would start to stress and comment once again that this is simply an ordinary course of business for us. In first quarter, we have not seen any inflation other than what we communicated one quarter ago. So claims inflation so far has been in line with our previous expectations. If you look forward, and we always have to look forward when we are talking about claims inflation, it's property in Norway with highest claims inflation driven by both materials and wages. We expect that to be in the range between 7% and 9% if you are looking 12 months ahead. And for motor, it's between 4% and 6%, and that's driven by wages, materials, type of claims and frequency, and we will see higher percentage in the end of the year, so between 4% and 6%.

And as you know, all of our personal risks are related to wage increases and so-called GE factor in Norway, and that's between 4% and 5%. The GE factor in 2021 was just below 5%. In Denmark, it's lower and in Sweden, it's lower, but we have seen inflation picked up, both in Denmark and Sweden too. But as I said, these levels are somewhat lower than in Norway.

[Tryfonas Spyrou, analyst]

And I guess just a comment on that, are you sort of pricing and [indiscernible]?

[Helge Baastad, executive]

We have demonstrated since 2018 that we had enormous pricing power. As you remember, we had this back on track related to motor insurance. We then operated with price increases far above 10%. What we are talking about now, it's that we have to and will and have ability to price in line with expected claims inflation. And what we see from our competitors is that they experience just the same as we do. And we both hear from calls and we see from market operations that this is well understood, and all of our competitors see the same landscape, I think.

So -- but we have ability to price in line with claims inflation. We will do that. And we just to comment, the balance between volume and price in motor in first quarter when we priced in line with claims inflation, is a nice balance between volume and price increased growth. So we are really confident that we will handle this in a good manner. We do not see any special softening market trends within any segment. It's highly competitive market, as you know, and it has been for many years. But I think the markets see this inflationary development, and they have to increase prices to maintain their profitability as we do.

[Operator]

We will take our next question from Ulrik Zürcher.

[Ulrik Zürcher, analyst]

Two questions. First, I was just wondering if given the material inflation and supply chain issues that they accelerated in March now, but many corporates are repriced in January. Do you see any short-term risk to your claims ratio there? Second question, I agree that motor looks strong, but I was wondering how you see the competition in private property in Norway. And that's -- if it's a risk that given your repricing that we might not see nominal premium growth for that product this year?

[Jostein Amdal, executive]

I'll start on then. I mean it's true that we upped our future inflation expectations on property as such somewhat from the previous quarter, approximately the percentage points in each end of the interval. We said at that time that we were pricing ahead of claims inflation profit, we aim to do that, and we are doing that, which means that we are pricing -- our pricing -- price increases contain the now new higher claims inflation estimate. Any unexpected increase in inflation is short-term negative, and we need to capture that on next repricing opportunity.

On private property. I mean we don't guide for kind of premium volumes in more specific business line going forward. But given the fairly high -- I mean the price in line with this new expected higher claims inflation and that there should be a reduction in volume to more than contract that is highly unlikely. I'll not go any further than that in guiding, but it's -- you should expect premium growth -- normal premium growth going forward as well.

[Helge Baastad, executive]

I think also -- I also think that our first quarter currency-adjusted 9.9% growth is a strong evidence that we have visibility.

[Ulrik Zürcher, analyst]

Yes, that had any difference. Sorry, I was just a follow-up then on the property because any difference between private property and corporate property, how much is the churn versus repricing?

[Jostein Amdal, executive]

Well, if you look at the Norwegian portfolio, the churn is actually on the -- in the segment as such we measure churn at a customer level. The churn is actually quite similar between private and commercial, which is maybe surprising from a more international perspective, but churns typically is higher within commercial, I think. But given our main focus being on SME customers in the commercial part, which have a very long-standing relationship with us, we have the same kind of business relationship with them as a private [indiscernible] in the way and they are loyal.

Our pricing power and competitive position, our overall offering is very good to be a bit cautious in Norway. I wouldn't say super, but it's really very good. And so this is not a concern in a self, I would say. And as I said in the previous question, this is kind of the overall input price increase for every company in this market. We probably see it more than the others because we have the -- or better than the others because we have the largest player, but it is the same picture heating everyone.

[Operator]

We will take our next question from Håkon Astrup from DNB Markets.

[Håkon Astrup, analyst]

Two questions from me. First, can you give some color on how the current inflationary environment is impacting the reserves under look at how 1% high -- percentage points higher increase over the next 3 years will impact [indiscernible]? And the second question on the procurement in this current environment, is it more difficult for you now to renew agreement with suppliers? And are there any increasing changes in terms of terms, et cetera?

[Jostein Amdal, executive]

Okay. I'll start on the first one on the reserve impact from inflation. The major part of the reserves are related to long tail lines of business, and then it's the long-term assumptions about especially wage and inflation because it's a personal injury related products that are constitute the largest part of the reserves. And our long-term estimates for inflation on wage time change significantly, and they are in line with what we see that the Central Bank and the statistical sensors bureau are predicating which is a return to more normal levels within 2 years. The short-term reserves related to property, motor and health are less exposed inflation. They are generally handled within 6 months. Inflation doesn't bite that quickly. So there is a minor negative effect there, but that's well handled within the current reserving.

[Håkon Astrup, analyst]

Inflation point, they are 1% of your over the next 5 years, how will that impact the total service and can you give us some number sensitivity here just for us to do the calculation ourselves?

[Jostein Amdal, executive]

I don't think we will go into that detail. It is numbers that we have and use for measuring our own risk position, but not haven't made public earlier. But if you take 5 years, and then a larger part of the reserves is actually affected. But as Helge mentioned, we are at 4%, 5% on this [indiscernible] amount, which is the one that's run or influencing the payouts in the future. But the overall tail is, so I think that's around 8 years for the workers' compensation products, for instance, which is -- I mean, it's a large part of the reserves are actually even further out here. So I won't give you any number, sorry. But of course, there is a sensitivity.

[Helge Baastad, executive]

Yes. We are -- we have a large claims organization with good agreements. And we have continuous dialogue with our suppliers on changes in prices. But 90% of repairs in Norway and Denmark are managed through contracted suppliers, and we have best market terms in Norway. And 75% of the costs are related to labor with fixed rates and annual indexation. So of course, the discussions and negotiations with the suppliers when you come to the year-end, I guess they use more time now compared to 1 year ago and 2 years ago. But I do not have any reports to me that we have problems in that type of dialogue. So it's ordinary business as well.

[Operator]

We will take our next question from Jan Erik from ABG.

[Jan Gjerland, analyst]

To take the inflation question a little bit different. If you saw that you think there is unlimited price increases that you can [ present ] to your clients and that they will actually accept it since they have no place to hide. But what do you think about the volumes, do they think they will negotiate on their tariffs and do some other changes to it so they can sort of -- so you would get a lower price or volume going forward? Is that something -- is something you can think of here? That's unthinkable so to speak?

[Helge Baastad, executive]

It's seldom I say that the questions are wrong, actually, but we are not talking about unlimited ability on Erik. And I think it's important to start with the fact that the main driver for claims inflation is wage increases. And the GE amount now is just beyond below 5%. But if you look at the estimates from Sweden, Denmark and Norway for government, it's below 4% going forward. So we are not talking about unlimited with our perspective as we speak now. But this is non-life insurance. It's a bet for the next 12 months. The business is that we have to have an estimate for claims inflation. That's also the same type of estimates and bets that our main competitors have to do. And in the environment we have now. We are very confident that we have a strong ability to pass through the claims inflation and price increases. But we have not talked about -- we haven't talked about unlimited. So that's a scenario we do not look into at the moment.

[Jan Gjerland, analyst]

Okay. On the new product in the housing or the refilling stuff you talked about, how should we think about that? This is a premium that people pay before they sell a house to -- so you can do some more preparation before the selling? Or how is the pricing premiums and claims on that kind of product is?

[Helge Baastad, executive]

It's a service, and it's not a risk premium. So this is a service concept. If you are talking about this, yes, Maksimer. Yes. And I think what we have seen through pilots Jan Erik is that the average cost for preparations before selling is between NOK 25,000 and NOK 30,000. So this is a service beside the insurance premiums that we offer to our suppliers, together with our suppliers for our customers to prepare for selling. And doing this, we take more care of our customers. We solve bigger problems and the position of home seller insurance in a good way.

[Jan Gjerland, analyst]

Okay. So it's not a premium [indiscernible] cost them to do?

[Helge Baastad, executive]

It's not the premium, it's a service product.

[Operator]

Our next question comes from Thomas Svendsen from SEB.

[Thomas Svendsen, analyst]

Question to the large claims. If you look at the large claims look away from weather effects, is it possible to say anything about how much or a cyclical component that these larger claims are increasing and the economy is doing well and how much is unlock? And if you should be prepared for maybe more large claims in the next couple of years than what we have seen the last couple of years?

[Jostein Amdal, executive]

We do not expect that, Thomas. I'm trying to see that there's any kind of cyclicality in the losses we have observed. I mean, in general, we do not make public though the actual losses or the simple each and every loss, but we did send out a press release related to the fire in Hemsedal which is a building under construction that took fire. We don't see anything specific about the drop the losses that in the non-weather-related losses that we've had in the first quarter. I would subscribe this a pure randomness.

[Thomas Svendsen, analyst]

And another question to private Norway. Is that the households or your customers expose income is produced by electricity prices drive increases, interest rate increases and now also sharp insurance premium increases? Should we still expect that sort of the underlying volumes if is not sensitive to sort of household income? Or should we expect the demand sort of top demand for insurance to go down, households are doing something because the disposal income is sharply decreasing?

[Jostein Amdal, executive]

At a certain extent, as leased in Scandinavia, these are basic products that you buy. I mean it's the house and the car that you have. And more or less everyone actually ensures that whether someone has a reaction to price increases, will choose a slimmer coverage on their car, might be. But we've seen in previous downturns that it doesn't typically happen. Baltics was a bit different to why we saw during the pandemic that people -- they had more tended to cancel their policies short-term at least. But in Scandinavia, this has not been a typical behavior. I mean there are the number of new apartments, houses are still increasing. Same goes for the car sales they were quite slow in the first quarter of 2022. So as the underlying assets increase in volume, their insurance volumes should also increase.

[Operator]

We will take our next question from Alexander Evans from Credit Suisse.

[Alexander Evans, analyst]

Mainly just firstly on the Baltics, maybe thanks for laying out that plan. I just wondered sort of on the confidence level that you have given the combined ratio that you reported in 1Q is 113%. And also, I noticed that you're talking about seeking inorganic growth opportunities in the Baltics. So just keen to understand how that would fit in the sort of restructuring there? And then also maybe just on the home sellers market, I think you set up 10% market share. Could you sort of remind us on what sort of market size you see there? And what sort of contribution that is to sort of private line? And then maybe just on sort of new car and new car sales, that's been down in the first quarter, I was just wondering how that plays into [ the end of the year ]. So you expect sort of lower new business growth also does that mean sort of higher retention as more people probably stay with you? I would want to understand that for the dynamic.

[Helge Baastad, executive]

I commented the Baltics, and we have used time together also with an external partner, and it's not dramatic measures actually. It's quite well-known measures we are implementing in the Baltic organization. It's about pricing, repricing, risk selection. It's about cost reduction, significantly cost reduction, and it's also our focus to be more focused going forward. As I said, we will move towards and below 100% in combined ratio this year. And further, we will move down towards 90% and demonstrate improvements quarter-by-quarter. And as I have said before, we will continue to look for value-creating solutions in the Baltic. It's not so close to Norway or Sweden, and it's not Scandinavia, but we will also look for inorganic growth opportunities.

So if we could increase our position and secure our position in this profitability journey we have started now, we will also look into that. So we are quite optimistic, actually, both buying and finding different kind of solutions in parallel with implementing the efficiency program we have started to implement now. So 100% -- below 100% this year, towards 90% for the next couple of years. And in parallel, all kinds of strategic opportunities will be evaluated.

[Jostein Amdal, executive]

Yes. And the second question on the home seller insurance market, which was kind of opened up with this new product from January 1 this year. I think we commented on the expected volumes there, which is kind of rough estimates that over time, this should develop toward NOK 2 billion to NOK 3 billion. But I mean, this has started very strongly because the new requirements for assessments -- for assessors is higher. So there is actually the turnover of new houses or turnover in the housing market has been lower, I think, in the first quarter due to this. And when we say 10% market is mainly kind of based on kind of large part of the distribution pool that we have secured for our product.

So I mean, the number you asked for NOK 2 billion to NOK 3 billion over a few years. And then we'll see how this develops. This, of course, devolves on the press level that we in it over time here, established itself in that market. Third one, new car sales. Yes, lower means new -- kind of new business from us from new sales. But remember that our market share is higher in the secondhand transaction market when the new suddenly turns into secondhand here. And our market share there, be it fossil or electric, whatever is much higher in that moment. So as I commented a bit on my previous question here, the number of new cars is still actually increasing number of cars just in Norway is increasing, which means our potential business volume is also increasing.

[Mitra Negård, executive]

We will take our next Faizan Lakhani from HSBC.

[Faizan Lakhani, analyst]

I just had a follow-up question on Norway property. Your [indiscernible] said that they are 5% rate increases up in private property. I just want to understand, is the market able to put through 7% to 9% -- or is that just yourself right now? And the second question is on the Private Norway segment as a whole. The underlying loss is development was very favorable in the first quarter. I just wanted to understand is that a fair run rate for the rest of the year?

[Jostein Amdal, executive]

I'll start with the easy one in a way, although it might not be easy in fact, but we are able to push through price increases that are at least in line with claims inflation. We've demonstrated that over the increase in claims inflation pressure that we have behind us, and we will manage that also going forward. So this is clearly doable. It is because we have a very strong competitive position.

[Faizan Lakhani, analyst]

I just want to understand how the rest of the market able to put through that level of rate increase as well?

[Jostein Amdal, executive]

I don't think I'll talk about the rest of the market.

[Helge Baastad, executive]

Talking about competitors, we don't do -- remember that we have also a very strong customer dividend model in Norway, and that's quite unique. So you have to look into all kind of aspects when you are discussing pricing power ability to drive through price increases. But we mainly focus on ourselves.

[Jostein Amdal, executive]

Yes. Private Norway, I think we don't guide on kind of what will the loss ratio or underwriting results be going forward. But if you kind of look at the underlying frequency loss ratio, there is kind of nothing -- there is no kind of specific volatility or specific events that make it so good. This is just the accumulated effects of work, both on -- everything we do on both claims handling, efficient pricing and cost reductions that is manifest themselves in this level. It's been very high profitability levels for a number of quarters. So -- but I won't say anything about kind of what will be the run rate of next few quarters. I'd say there's nothing specific about this quarter that kind of should hinder it from continuing.

[Operator]

We will take our next question from Jan Erik from ABG.

[Jan Gjerland, analyst]

Just one follow-up on the run-off gains. The level of 3.7% is, of course, in line with last quarter, but lower than last year. Is this sort of in the prediction we should expect that it should continue to lower into 2023?

[Jostein Amdal, executive]

Well, as I might have mentioned it on the previous quarter call that there is a NOK 1 billion of gain that we had in the last year of this year that we have this planned reserve release from the winter since 2008 to 2014 mainly related to Workers Comp in Norway, personal accident cars and the workers comp in Denmark. We talked a bit about this on the CMD also in November, whereas you look at -- historically, there has been positive runoff gains, I mean, 1 to 2 percentage points of premiums, but this is -- this was history, our kind of guidance there is that we do not have any planned reserve releases going forward.

[Jan Gjerland, analyst]

If you look into the -- on Slide 27, you show it very nicely. So over NOK 1 billion, you would just had NOK 34 million runoff gains in this quarter.

[Jostein Amdal, executive]

Yes. That's great. And I say this sounds really too much [indiscernible].

[Mitra Negård, executive]

Are there any further questions?

[Operator]

It appears that no further questions at this time. Thank you.

[Mitra Negård, executive]

All right. Thank you. Thank you for all your good questions, everyone. We will be participating in a number of roadshow meetings and conferences this quarter too. We are happy that the majority will be in person this time after 2 years of almost fully digital meetings. The meetings will be held in Oslo, London, Copenhagen, Frankfurt and Rome. Please see our financial calendar on our website for more details. Thank you for your attention, and have a great day. Bye.